Magazine article American Banker

Bank Stocks Rise despite Disappointment on Rates

Magazine article American Banker

Bank Stocks Rise despite Disappointment on Rates

Article excerpt

Banks stocks closed higher Wednesday after a midday selloff triggered by the Federal Reserve chairman.

Rumors of coordinated rate-cutting among the major industrial countries have recently swirled through Wall Street. But Alan Greenspan doused such speculation.

"There is no endeavor to coordinate interest rate cuts" to deal with the financial crisis among emerging nations, he told the House Banking Committee. Nor did he signal any such imminent action by the Fed alone.

Mr. Greenspan and Treasury Secretary Robert Rubin both appeared before the committee.

Investors have been anticipating a interest rate cut since troubles in the economies of Asia, Russia, and Latin America began reverberating in the U.S. stock market. Experts argued that lower interest rates would prompt investors to flock to foreign securities in troubled countries.

Banks also tend to thrive in lower rate environments, provided the Treasury yield curve is positive and their spread income is enhanced. Market players jumped into bank stocks Wednesday morning, driving up prices in anticipation of a rate-cutting signal from the Fed chief.

"You had a lot of fast money trying to buy and short stocks," said one bank stock trader who declined to be identified. "But once people started to break down what Greenspan actually said, bank stocks came under pressure."

Later bank stocks rose again after some observers decided the Fed leader's remarks were largely positive, even without rate-cutting clues.

Investors were searching for any hint of good news, said David H. Ellison portfolio manager at FBR Fund Advisors, who runs a bank and thrift mutual fund.

"What more can go wrong?" said Mr. Ellison. "The last six to eight weeks have been much like the Howard Stern show-nothing but shock after shock. But now the shock value is over. If they cut interest rates, investors think that's good; if they don't, they will think that's good too. …

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